The U.S. BEEF PACKING INDUSTRY

1. The U.S. BEEF PACKING INDUSTRY By David R. Hawkins Michigan State University

2. HISTORICAL • In colonial America, cattle were used for milk & work and were not harvested for beef until they were several years old. • The first meat packing plant was established in 1636 by William & John Pynchon in Springfield, Massachusetts. • Beef and pork were “packed” in barrels with salt as a preservative.

3. Historical • In 1756, the Brighton market, near Boston, became the first recorded public auction market. • In the early 1800’s, excess grain produced in the Ohio River Valley was fed to livestock. The cattle were driven on foot to the eastern cities to be slaughtered.

4. Historical • During the U.S. Civil War in the 1860’s, cattle from Texas & Oklahoma were driven to railroad towns in Kansas & Missouri for shipment to the eastern cities. • In the late 1800’s, stockyards and packing plants were built in midwestern cities. • Chicago (1865) - Kansas City (1871) • St. Louis (1873) - Omaha (1884)

5. Historical • In 1875, refrigerated rail cars made it possible for cattle to be slaughtered near the production site and the beef to be shipped to consumers. • In 1906, the Meat Inspection Act was passed. • The Packer and Stockyards Act, passed in 1921, provided market regulations.

6. Historical • The USDA Federal Meat Grading Service was set up in 1926. • By 1942, large commercial feedlots emerged. Large numbers of semi-trailer trucks hauled both grain and cattle. • The Humane Slaughter Act was passed in 1958, which regulated packing plant procedures.

7. Historical • By 1960, the large commercial feedlots in the high plains were well established. • New packing plants were built near the feedlots and the large terminal markets began to close. Boxed beef began to influence the industry. • Beef carcass grading standards were revised in 1950, 1965, 1976, 1987, 1989 & 1997.

8. Historical • In 1990’s beef industry focus shifted to the consumer and the product. • National Beef Quality Audits were conducted in 1991, 1994, 1995 & 2000. • Food safety concerns have resulted in the development and implementation of HAACP procedures.

9. FED vs. NON FED BEEF • About 70% of the cattle harvested in the U.S. have been fed grain in a confined feedlot for at least 100 days prior to harvest. • The remaining cattle are classified as “non fed” cattle. Included are cull dairy cows, beef cows and bulls plus grass or forage fed steers and heifers that have not received supplemental grain.

10. Current Status • About 80% of the beef is sold as “boxed” beef, primal and subprimal cuts from which most of the bone and excess fat have been removed. • Boxed beef has increased the efficiency of the industry by reducing transportation costs on lower value byproducts (bone and fat). Shelf life in the retail store is also improved.

11. 1. IBP Inc. - $9.3 Bil. 2. Excel Corp. - $7.0 Bil. 3. ConAgra Beef - $ 6.0 Bil. 4. Farmland National - $ 2.8 Bil. 5. Packerland - $ 1.3 Bil. 6. Nebraska Beef - $750 Mil. 7. Greater Omaha - $620 Mil. 8. American Foods - $581 Mil. 9. Moyer Pack.-$561Mil. 10. Rosen Packing-$460Mil. 11. Taylor – $ 375 Mil. Top 11 Beef Packers(2000 Annual Sales)

12. Packer Options for Michigan Cattle Feeders in 2000 • IBP Inc. - Joslin, IL • Packerland - Plainwell,MI & Green Bay,WI • Taylor - Wyalusing, PA • Moyer - Souderton, PA • Corn Belt - Detroit, MI

13. MERGERS IN 2001 • IBP was purchased by Tyson Foods in early 2001. • Smithfield Foods acquired Moyer Packing in June, 2001 and Packerland in October, 2001. They tried to acquire American Foods and then later withdrew the offer. • Excel purchased Emmpack Foods in August and Taylor Packing in December, 2001.

14. NEW PACKERS IN 2001 • Future Beef Operations opened in Kansas in August. • Brawley Beef was scheduled to begin operation in California in December. • No new plants are being proposed for our region.

15. Top Five Beef & Pork Packers • IBP, Excel, ConAgra, Smithfield & Farmland harvest 80% of the cattle processed in the U.S. • These same five firms also harvest 65% of all the hogs processed in the U.S. • IBP had sales of $ 16.95 Bil. for 2000. • In 1996, 15 % of IBP income was from value added products vs. 40% in 1999.

16. IBP-TYSON MERGER • The sale of IBP to Tyson Foods was completed in 2001. • The new company will control • 28% of beef market share • 18% of pork market share • 25% of chicken market share • The contending bidder was Smithfield Foods, the largest U.S. pork processor.

17. IBP – 10,000 hd/day Excel – 6,400 hd/day ConAgra – 6,200 hd/ day Farmland – 2,700 hd/ day Smithfield – 2,085 hd/ day Choice Fed Cattle Choice Fed Cattle Ch. British & Cross 92% Fed, 8% Non Fed Black Angus Fed Holstein – 75% Fed, 25% Non Fed + Choice Fed Cattle PACKER CATTLE TYPES

18. Challenges for Beef Packers • Food safety • E. coli 0157:H7 • Consistency and quality of product • Branded products • Labor shortage to staff plants • Captive Supply • Marketing Alliances

19. Captive Supply • Cattle owned or controlled by packers at least 2 weeks prior to slaughter. • Forms of captive supplies • Forward contracted cattle • Packer owned cattle in custom feedlots • Marketing agreement cattle • Major concern is reduced market information

20. Packer Advantages to Contracting • Secure cattle supply for efficient plant operation • Input into or control of animal quality • Risk management • Market power in price discovery

21. Feedlot Advantages in Contracting • Assured of buyer for cattle • Risk management • Access to carcass data on cattle • Value based marketing • May receive favorable financing • Increase feedlot utilization • Develop positive relationship with packer

22. QUALITY GRADES OF BEEF • Determined by marbling and maturity • Prime, Choice, Select and Standard are grades for younger cattle (A or B maturity) • Commercial, Utility, Cutter & Canner are grades for older cattle. Most of this beef is used for grinding and further processing.

23. 1995 NATIONAL BEEF QUALITY AUDIT Quality GradeActual %Ideal % Prime 1% 7% Upper 2/3 Choice 11% 21% Low Choice 36% 34% Select 47% 38% Standard & Lower 5% 0%

24. YIELD GRADES OF BEEF • Numerical score: 1 (lean), 2, 3, 4 & 5 (fat) that equates to the % boneless, closely trimmed retail cuts (BCTRC). • A 700 lb. carcass with a yield grade of 3.0 (50% BCTRC) would yield 350 lbs. of BCTRC of beef.

25. 1995 NATIONAL BEEF QUALITY AUDIT Yield GradeActual % 1 17.9% 2 50.6% 3 26.5% 4 4.6% 5 0.4%

26. 2000 NATIONAL BEEF QUALITY AUDIT • More Prime and Choice carcasses – 51% in 2000 vs. 48% in 1995. • Fewer “B” maturity carcasses in 2000. • No major shifts in excess fat production. • Fewer cattle with horns = less bruising • Major improvement in frequency of injection site lesions. (>3% in 2000 vs. 22% in earlier audits)

27. 2000 NATIONAL BEEF QUALITY AUDIT (NBQA) • There is still a need to improve uniformity and consistency of cattle, carcasses and cuts. • Tenderness is still a concern. • Goals for the 2005 NBQA are to eliminate Standard quality grade cattle as well as yield grade 4 & 5 cattle.